Market Recap Jun 29, 2015

Many assumed negotiations would go to the last minute and then a “stick save” would appear this weekend between Greece and its creditors – as has been the pattern for years globally since Lehman Brothers was allowed to fail. Talks fell through Saturday and markets misbehaved in reaction Monday. That said there is still time for a kick save – it is just going to have to be after the Greeks…

Read the full article at StockTradingToGo.com


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Paid Maternity Leave: Employers or Taxpayers should Pay?

Hillary Clinton went on record on Mother’s Day advocating for paid maternity leave (video). Future President Clinton doesn’t explain who should write the checks to people who aren’t working, but the implication is that it should be employers. Let’s assume that if a professional politician is saying something it is a message that Americans are enthusiastic about hearing.

But if this is so important to the country, why shouldn’t taxpayers pay? If we make employers pay, won’t that discourage them from hiring women who either are or could become pregnant? Would you want to hire a woman with an 8-month belly knowing that, over the next five months you’ll pay for five months of work and get one month of productivity?

People who advocate for paid maternity leave justify the idea on the grounds that the U.S. needs more taxpayers to keep the various Ponzi schemes run by local, state, and federal governments going. Who will pay the Social Security and Medicare taxes if not the yet-to-be-born? Who will fill the canyons that we have cut through the pension funds of New Jersey, Illinois, and various cities if not the yet-to-be-born?

If that is truly the justification for subsidizing the fertile, why is it Walmart’s job yet again to do the subsidizing? If all of us benefit as citizens from having 500 million people in the U.S. rather than 320 million, shouldn’t we all pay?

Nobody seems to mention the potential citizen-to-citizen equity issue. Childless citizens are already paying for income tax credits, child care tax credits, and the world’s most expensive K-12 education system for which they have no personal use (plus free community college for other citizens’ children and subsidized state universities). Once the new requirements for employers are in place these childless citizens will have to work a little harder all year so that those who are blessed with children can have paid time off.

Let’s consider two single co-workers in Massachusetts, Jen and Sue. Both earn $ 100,000 per year, $ 68,000 after taxes. Jen is infertile. Sue goes to a bar and has sex with a dermatologist earning $ 500,000 per year. Sue is now entitled to 23 years of child support, which should work out to roughly $ 75,000 per year tax-free (see the Massachusetts chapter of Real World Divorce). As soon as the baby emerges, Sue can file as head of household and her take-home pay goes to $ 69,000 per year. She’ll also be entitled to a $ 3,000 per year tax credit for child care if she decides to continue working. Sue’s spending power now goes up to $ 147,000 per year, 2.16X her childless co-worker’s. At least for four years, until the child is eligible for the free pre-K programs that the government wants to offer, she’ll have about $ 20,000 per year in expenses but that should drop down closer to $ 5,000 per year once the child is in K-12 (see William Comanor’s analysis in previous posting). Even if we were to assume the $ 20,000 per year cost continued for all 23 years, and further assume that the father couldn’t be saddled with these costs on top of the child support (as is typical; see the Kosow v. Shuman case in the chapter), the worker who had sex with the dermatologist can out-spend the childless worker by 1.87:1. When they have identical skills and W2 incomes, can it be fair for the lonely childless person who can spend $ 68,000 per year to subsidize the co-worker who can spend $ 127,000 per year and is blessed with the company of a child?

Let’s look at what would happen in Wisconsin at a lower income level. Melissa and Brenda both earn $ 50,000 per year. Melissa is infertile. Brenda has sex with a married plumber earning $ 140,000 per year. Brenda is entitled to $ 23,800 per year (17 percent of the plumber’s income; see Wisconsin chapter) in tax-free child support. Melissa will take home $ 36,738 per year. Brenda will take home $ 37,763 per year, which gives her a total spending power of $ 61,563, a 1.68:1 ratio compared to Melissa. Day care costs about $ 10,000 per year in Wisconsin so, after adjusting for the $ 3,000 per year tax credit, Brenda will have to spend about $ 7,000 per year on day care for 4-5 years if she wants to keep her job. Suppose that Brenda finds it tough to make ends meet on $ 61,563 per year? She has sex with the school principal of her first child’s kindergarten. He earns $ 130,000 per year (Wisconsin State Journal), which means that the resulting child will generate tax-free revenue of $ 22,100 per year. Now Brenda will have a total spending power of $ 38,613 from wages (one more dependent) plus $ 45,900 from child support for a total of $ 84,513, very comfortably above the median Wisconsin household pre-tax income of $ 49,000 per year. When they have identical skills and jobs, is it fair that Melissa have to work harder to help out Brenda, whose spending power is 2.3X her own?

Let’s suppose that we do think it is fair for childless workers to subsidize workers with children, even when those children are yielding a substantial profit. And let’s suppose that the goal is to get Americans to have more children so that they can grow up to pay for public employee pensions and federal entitlements. Are we subsidizing Americans with children intelligently?

The child dependent tax credit is the same in Year 0 when a child can be expensive and hard to care for as it is in Year 17 when the child may have a job and actually be contributing to the family income. A typical American will also enjoy a higher income from wages when children are 17 than when children are born, simply due to normal career advances. Behavioral economists, such Daniel Kahneman, have found that people respond very weakly to incentives that are 18 years in the future. Wouldn’t it make sense to front-load some of the cash benefits that the childless give, filtered through the government, to those with children? K-12 schooling is the most expensive thing that the government does for Americans with children and it is back-loaded, without any benefit for the first five years of childhood. Why not take all of the tax credits and deductions that we currently give to American parents over 18 years and cram them into the first five? If a higher fertility rate is the goal, perhaps also eliminate public subsidies for college (most of which is pocketed by colleges through higher tuition) and spend the money during this 0-5 period? Young people, just starting out in their careers, should be a lot more motivated to have children if they know that nearly all of their pre-K expenses will be covered by the government. If the kids get a little more costly later…. well, they’ll deal with that when the time comes.

Thoughts from readers?

Philip Greenspun’s Weblog

Focus on the road higher in Mobileye

Written By: DragonFly Capital

article-1327331675590-116AFD4E000005DC-394364_636x391

Driverless cars may be the next wave in transportation. Think about how much better your commute could be if you could read, respond to clients, sleep. Or the family trip if you could join the kids in watching that move or reading a book. My wife is already saying that our next car will be driverless. Hurry up guys my Armada already has 125,000 miles on it.

One company on the leading edge of the technology involved in this Mobileye ($ MBLY). They design and develop software and related technologies for camera-based advanced driver assistance systems. Based in Israel, they have a big potential ahead of them if successful. And their stock price is showing signs of that now.

mbly

The chart above shows the price action over the last year. Notice the big downward falling wedge from September until the break higher in March. The break targeted a price of 48 and it hit that by mid-April. Since then it consolidated for 2 months before pushing higher again. This break over 48 triggered a Measured Move to about 60.

You can see from the current consolidation at 54.25 that the price is about half way there. If you have not been involved in this stock a break over 54.25 is a good spot to enter. It gives a natural stop below the consolidation at 52.75, for a 3.8:1 reward to risk ration on a move to 60. The Momentum indicators support a move like this with the RSI bullish and the MACD rising. And with 13% short interest it could get the benefit of a short squeeze as well.

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Ideas for affirmative action $10 bill

The government says that you need to be a woman (definition? see below) to be on the $ 10 bill and also to be dead. I propose that the “dead” restriction be lifted. Let’s keep the focus on the future, not the unenlightened past.

Many countries select prominent authors. Given the limitation to a living woman I think that would have to be Toni Morrison, Nobel Laureate.

Movies and music have replaced writing in a lot of Americans’ lives. Why not Madonna? Or a movie director or actress? Everyone feels elevated by Meryl Streep. How about Oprah Winfrey? I would be happy every time that I opened my wallet if I could see a portrait of Oprah.

The future may be an America where everyone can be a victim. The natural choice would then be Ellen Pao. She has been identified by the New York Times and other national media as a heroine to American women. She has demonstrated racial and sexual preference tolerance as well with her marriage to a gay black man. Actually if there were a dual portrait of the happy couple the $ 10 bill would thereby include a trifecta of American victimhood (female, black, gay).

Lenore Weitzman has perhaps had more impact on America’s children than any other woman. As noted in the “History of Divorce” chapter, her political work was instrumental in states adopting the current (highly profitable) child support guidelines. The economic incentives resulted in millions of additional American children living without two parents. Weitzman also enabled an adult American to tap into the resources of multiple adults simultaneously (formerly the money was in alimony rather than in possession of children and one could tap just a single alimony payor at any one time).

Caitlyn Jenner raises some definitional questions. What would it mean to be a “woman” for the purposes of this affirmative action campaign? Does she have to have two X chromosomes? A female-style body, whether naturally or artificially created? Simply a Rachel Dolezal-style identification with things feminine? Jenner was a great athlete and shows that it is possible to inspire Americans over many decades.

Ideas from readers?

[If the death requirement is not relaxed, my personal vote is for Sacagawea. Via her achievements as an explorer and diplomat she was instrumental in leading the expansion of the U.S. from a coastal nation into a continental one. She made a multi-thousand-mile road trip, a quintessentially American phenomenon. She did the trip on foot and while carrying and nursing a baby. The downside of choosing Sacagawea is that would encourage Americans to dream about our past as a sparsely populated frontier nation, not think seriously about our future as nation of 400 or 600 million.]

Philip Greenspun’s Weblog

How to Add Probability to This Index Mean Reversion Pairs Trade Opportunity

With RUT accelerating to new highs and the SPX lagging — is there an opportunity for a mean reversion pairs trade?

I believe so.

The probabilities are high for mean reversion. But, the danger of a mean reversion trade is the possibility of being too early.

That is where options can give us additional edges.

With options we can “lean” one way or the other and not need the directional bias to work out.

A bearishly positioned spread in RUT (like the bearish butterfly) coupled with a more bullish spread in the SPX (like a medium probability credit spread) could allow for the mean reversion bias to be profitable — Read more […]
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Macro Week in Review/Preview June 19, 2015

Written By: DragonFly Capital

Last week’s review of the macro market indicators suggested, heading into June Options Expiration week that the Equity markets looked weak in general short term. Elsewhere looked for Gold to continue lower while Crude Oil consolidated in the uptrend. The US Dollar Index was also in broad consolidation but with a downward bias while US Treasuries were trending lower but might be ready for a bounce. The Shanghai Composite remained strong and rising while Emerging Markets were biased to the upside short term in the downtrend. Volatility looked to remain subdued keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts suggested that it would take some work for the SPY and QQQ which looked weak in the short term and flat intermediate, while the IWM trended higher.

The week played out with Gold steady before a push higher to end the week up while Crude Oil continued to be range bound. The US Dollar continue the move lower while Treasuries held just above last week’s level. The Shanghai Composite is showing a strong pullback while Emerging Markets again found support and bounced. Volatility started the week higher but fell back quickly ending close to unchanged. The Equity Index ETF’s ignored this mix and just moved higher, with the SPY and QQQ seeing some selling Friday while the IWM printed a new all-time high and held. What does this mean for the coming week? Lets look at some charts.

If you like what you see sign up for more ideas and deeper analysis using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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Young person’s perspective on the Charleston church shooting

I asked a young friend if he thought that America’s gun laws, including perhaps the Constitution, should be changed in response to the recent Charleston church shooting. Given the human bias towards action I was surprised that he responded “No, if you take away guns from people like that they will just find another even more destructive weapon.” A ghoulish speculation followed concerning the possibility that if Dylan Roof hadn’t a handgun he would have visited the same web sites as the Tsarnaev brothers and brought a pressure cooker bomb to a church potluck.

[Separately, this article reveals that Dylan Roof had been, in his 21 years, already supporting the twin pillars of the American legal industry: custody litigation and drug law enforcement.]

What do readers think? What, if anything, can we learn from this sad event?

Philip Greenspun’s Weblog

Oracle Had A Fundamental Catalyst That Made It A Good Short

ORCL reported disappointing earnings after the Close on June 17th. The next morning it traded lower before rallying back $ 2 with the market. I had two reasons why I thought it would roll over again the next day. One, I believed the large market rally the prior day was the primary driver of its bounce from 41 to 43. Two, after large funds had a chance to digest the earnings release which showed disappointing subscription numbers they would sell, because SAAS is the only major catalyst for ORCL at this point which I am aware.

The above graphic is from the pre-market game plan I write out each day so it is easier to follow Read more […]
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SPY Trends and Influencers June 20, 2015

Written By: DragonFly Capital

A weekly excerpt from the Macro Review analysis sent to subscribers on 10 markets and two timeframes.

Last week’s review of the macro market indicators suggested, heading into June Options Expiration week that the Equity markets looked weak in general short term.

Elsewhere looked for Gold ($ GLD) to continue lower while Crude Oil ($ USO) consolidated in the uptrend. The US Dollar Index ($ UUP) was also in broad consolidation but with a downward bias while US Treasuries ($ TLT) were trending lower but might be ready for a bounce. The Shanghai Composite ($ ASHR) remained strong and rising while Emerging Markets ($ EEM) were biased to the upside short term in the downtrend.

Volatility ($ VXX) looked to remain subdued keeping the bias higher for the equity index ETF’s $ SPY, $ IWM and $ QQQ. Their charts suggested that it would take some work for the SPY and QQQ which looked weak in the short term and flat intermediate, while the IWM trended higher.

The week played out with Gold steady before a push higher to end the week up while Crude Oil continued to be range bound. The US Dollar continue the move lower while Treasuries held just above last week’s level. The Shanghai Composite is showing a strong pullback while Emerging Markets again found support and bounced.

Volatility started the week higher but fell back quickly ending close to unchanged. The Equity Index ETF’s ignored this mix and just moved higher, with the SPY and QQQ seeing some selling Friday while the IWM printed a new all-time high and held. What does this mean for the coming week? Lets look at some charts.

SPY Daily, $ SPY
spy

The SPY started the week lower, with a touch at the 150 day SMA by the lower shadow of the candle Monday. The Hammer then was confirmed higher Tuesday and followed through within pennies of the all-time high close at Thursday’s close. It was set up to pullback though as it went ex-dividend Friday, and then continued lower closing the week up a tad. The daily chart shows the RSI continuing along the mid line with the MACD trying to cross up. Both look neutral.

The weekly chart shows the price still hanging in the top of the consolidation box. The Bollinger Bands® are squeezing though, often a precursor to a move in price. The RSI on this timeframe is holding over the mid line in the bullish zone with the MACD falling. There is resistance higher at 211 and 212.50 followed by 213.35. Support lower comes at 210.25 and 209 followed by 208 and 206.40. Continued Consolidation in the Long Term Uptrend.

SPY Weekly, $ SPY
spy w

As the markets head out of June Options Expiration and officially into summer equities continue to churn with an upward bias.

Elsewhere look for Gold to be biased to the upside short term in its consolidation while Crude Oil consolidates with an upward bias. The US Dollar Index looks headed lower in its broad consolidation of the long move up while US Treasuries may be consolidating in their downtrend. The Shanghai Composite may be beginning its long awaited correction, or just doing its 4th 10% plus move lower before another launch higher, while Emerging Markets are biased to the may be consolidating after their move lower.

Volatility looks to remain subdued keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. The IWM continues to look the strongest on the short time frame as it sits at all-time highs, with the QQQ strong as well on the weekly timeframe and the SPY stuck in a funk consolidating. Use this information as you prepare for the coming week and trad’em well.

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Getting more than breakfast out of Bob Evans

Written By: DragonFly Capital

bobevans600

Despite the pundit call for earnings season to kickoff with Alcoa and an end 3 or 4 weeks later, there are actually companies reporting earnings nearly every day. Sometimes they are big ones and sometimes little companies that would go completely unnoticed if they reported that first week of the season.

Tonight there are 3 reporting, Adobe ($ ADBE), La Z Boy ($ LZB) and Bob Evans ($ BOBE) and then one in the morning FedEX ($ FDX) all over $ 1 billion in market capitalization. This is more than two months after Alcoa started the Quarter off, and much closer to the start of the next quarter. Yes earnings season never ends!

A second message you hear all the time is that traders should not hold stock through earnings. That is also a load of hogwash. Almost every stock can be protected through earnings using options. What is more you can use those options to actually trade just for the volatility that can come from earnings reports. Bob Evans is an interesting one so lets take a closer look.

bobe

The chart of Bob Evans above shows a big gap down following the last report in March. But since then it has consolidated in a tight range between 44 and 47.50 for over 3 months. That is until it jumped higher 3 days ago. It has held that move over resistance heading into the report tonight.

From a technical perspective it has good momentum indicators, with the RSI in the bullish zone and the MACD crossed up and rising. The Bollinger Bands® are also opening. Without the earnings report the chart looks like it is consolidating the move higher, back into the Bollinger Bands to prep for another step higher. The June contracts suggest that traders are looking for about a $ 4 move by Friday.

Over the last 6 reports the stock has averaged a move of about 9.71% or $ 4.65 at today’s price. The options market shows high open interest at the 40 and 45 Put Strikes expiring Friday and at the 50 and 65 Call Strikes.

With the 200 day SMA at about 49.40 above and the upward bias I like a June/July 50 Call Calendar selling a June 45 Put to trade the event. This is buying the July 50 Call and selling the June 50 Call, but also selling the June 45 Put. There is no cost to put this trade on, but it does use margin or requires cash to cover owning the stock at 45 if you do it in an IRA. The risk is that it falls under 45 and you are put the stock. If it rises but not above 50 you can continue in the trade with long July Calls. If it moves over 50 you can sell the Call Calendar for a few cents or look at moving it to a July Call Spread.

These are the types of trades given to subscribers every day. If you like what you see sign up for more ideas and deeper analysis.

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June 16 Bullish Dominance Market Update and Stock Scan

Buyers win again!  That’s the case almost every day now so perhaps this shouldn’t be a surprise.

Price moved – as logic suggested – up away from the 2,070 level toward 2,100 where we are currently.

What levels are important now into 2,100? Let’s see!

Logically speaking, 2,100 is our simple “Key Pivot” reference level and we’ll use it in our short-term planning.

We’re outright bullish for more pro-trend (bullish) continuation above this level.

However, we’ll be cautious right now because the 2,100 target is in sight for today’s session.

A Trend Day (see our new “Trend Trader’s Perfect Pullback” Lesson Bundle) developed, taking price up away from the 2,070 level to where we are currently.

Let’s dig into Breadth to see additional clues about the health of the current rally.

Let’s see what our Breadth Chart reveals about current market strength (or weakness):

We’re actually seeing across the board Bullishness with a slight tilt to the defense.

The strongest sector today is the defensive “Staples” with Financials trailing Staples.

Despite these two, strength (breadth) is consistent which supports the bullish price action today.

Here are today’s strongest trending (intraday) names – candidates for pro-trend continuation:

COTY, Estee Lauder (EL), Axis (AXS), and Weyerhaeuser (WY)

Bearish downtrending candidates include the following stocks from our “weakness” scan:

Bloomin’ Brands (BLMN), Oshkosh (OSK), Terex Corp (TEX), and Southwest Airlines (LUV)

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Corey Rosenbloom, CMT
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Ride on over to Tractor Supply to stock up

Written By: DragonFly Capital

featured-neighborhood-supply-store

The beans and corn were planted long ago and are rising fast. What is a farmer to do now? Just wait for the harvest? Mostly, but this is a good time to take a look at your equipment and see if you need any repairs. Maybe even time to go get some spare parts. And the good folks at Tractor Supply Co. ($ TSCO) seem ready to greet you. Heck looks like you can even ride your horse there.

But if you do not have a farm, then you still might have interest in Tractor Supply Co. for its stock. It has held up very well over the last 3 months. The chart below shows the flat consolidation over the 50 day SMA and a rising 200 day SMA.

tsco

The far right end shows that the recent activity has built an ascending triangle and price is back testing resistance again. A move over the top at 90.75 would target a run to 97.25. The Bollinger Bands® have squeezed and are now starting to open for a move. The RSI is rising and in the bullish zone. And the MACD just crossed up. Time to saddle up and head to your broker for a few shares.

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Helicopter instructor job opening

Aviation readers: Our two full-time helicopter instructors reached 1000 hours and were able to get jobs flying jet-powered helicopters. We filled one opening with one of our own graduates but need to hire a second full-time instructor (about 600 hours per year in the Robinson R44 per CFI) at East Coast Aero Club. Please email resume if interested.

Philip Greenspun’s Weblog